Virtual Top Shelf in an Endless Aisle

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Eighty percent of tea in the US is purchased at mass market outlets. It is too early for a final tally of 2018 sales but in grocery, department, big box, and drug stores sales are down across every category except ready-to-drink, according to market research firm IRI. Meanwhile, online sales of groceries more than tripled between 2013 and 2018, according to market research firm Packaged Facts, with Amazon and Walmart together accounting for 28% of online grocery sales.

Statista, a German market research firm that conducted an extensive survey of US beverage habits estimates that 14% of tea drinkers bought tea online in 2017.

From the Managing Editor's Desk

Dan Bolton,STiR managing editor

The channel appeals to suppliers at origin who retain a greater percentage of revenue vs. traditional distribution. Subscription suppliers like Teabox and Vahdam Tea are built on a business model that assumes last mile delivery by online behemoths in destination countries. Growers are also seeking to bypass a costly supply chain. Luxmi Tea, owners of the prestigious Makaibari brand in Darjeeling, now markets its premium teas in 250g and 500g packages on Amazon and Flipkart in addition to www.makaibari.com. Silver Tips Imperial, a semi-fermented handmade full-moon oolong, sells for $30 for 50g (equivalent to $600 per kilo). Amazon keeps a significant share of sales but attracts billions of transactions and deftly handles delivery.

This points to a huge opportunity for coffee and tea. While the upper shelf is not barren in the US, premium teas are few. You see Mighty Leaf pouches in Kroger with TAZO and Teavana. Selections from Republic of Tea, Numi Organic, and Rishi Tea & Botanicals fight for space in natural food stores and mainstream outlets in affluent neighborhoods, but hundreds of fine quality brands favored by specialty tea drinkers simply do not sell fast enough for grocers to allocate shelf space. Grocers recognize that tea is a high-margin, fast-moving consumable, but unlike premium coffee, which has seen greater allocation of shelf space to accommodate regional roasters, tea is underperforming, down 4.1% in dollars compared to the previous year. This is due, in part, to limited selections. Tea companies should challenge that bias. In August Loblaws, the largest grocery retailer in Canada, struck a deal with DAVIDsTEA of Montreal to stock its top shelves with specialty selections previously available only at the 240 DAVIDsTEA shops and online. Loblaws operates 2,300 grocery and drugstore stores.

People are picky about their food. They like to visit grocery stores to discover new products, smell and squeeze produce in season, and compare specialty items but showcases like Whole Foods Markets operate only 479 stores. A small percent of American shoppers live nearby. In contrast, Kroger operates 2,782 in 35 states. There is a Walmart located within a few miles of 90% of the US population. Supermarkets only stock fast-moving items.

Retail consultant Brittain Ladd, writing in Forbes, estimates Amazon could build 2,000 Whole Foods Markets and 1,500 AmazonFresh Pickup locations. AmazonGo can successfully expand to 5,000 locations, according to Ladd. Imagine an in-store display with a colorful video monitor in the tea aisle offering 40-60 specialty coffee and tea brands. A virtual top shelf in an endless aisle in hundreds of new storefronts would put specialty teas in front of millions of new customers with two-hour delivery or convenient in-store pickup.